* Zloty leads drop as FX retreat from highs
* Dealers say time right for correction
* Bond yields fall
(Adds bonds, updates prices)
By Jason Hovet
PRAGUE, March 11 (Reuters) - The Polish zloty led falls in
central European currencies on Thursday as the region corrected
after a fast rise to multi-month highs this week on improving
economic prospects.
Better data on manufacturing and sentiment has fuelled gains
for emerging European assets in the past month, with more
investors attracted to the region after concerns over euro zone
peripheral debt rattled markets there.
But with the sharp rise seen over the past month and Polish
and Romanian policymakers voicing increased concerns over the
growing strength of their currencies, dealers said a correction
was needed to bring levels better into line.
"We opened weaker and it seems it's time for a correction,"
a Warsaw dealer said. "The question is how big the correction
could be."
The zloty <EURPLN=> fell 0.6 percent on Thursday to bid at
3.901 to the euro by 1101 GMT.
It has extended losses since Poland's central bank governor
Slawomir Skrzypek said on Wednesday that fundamentals did not
justify the current state of currency markets, knocking the
zloty off a 15-month peak. []
Analysts say the sharp rise in the EU's emerging currencies
may hurt economic recovery this year, and policymakers look
likely to battle this threat by keeping interest rates low and
threatening market intervention. []
"The zloty at such (strong) levels does not make sense,"
said Ulrich Leuchtmann, head of foreign exchange research at
Commerzbank in Frankfurt.
"It should not much below 4.00 (per euro). The speed of
appreciation we have seen since January is way too high; the
Polish economy cannot live with such speedy appreciation."
Markets see an export recovery this year fuelling gains,
with Poland's zloty in the lead because of its stronger economy.
The zloty has led gains among emerging EU currencies since
the start of the year with a 5.1 percent rise, followed by the
Romanian leu's 3.5 percent and Czech crown's 2.9 percent gains.
BONDS, RATE CUTS
Investors appetite for emerging Europe has also been a boon
for debt markets, with yields dropping across the region.
Romania ends a roadshow for its planned Eurobond issue on
Thursday and lead managers of the deal said the five-year
euro-denominated bond could launch this week. []
Polish bonds firmed on the long end after a well-bid 2-year
bond tender on Wednesday. []
In Hungary, the forint <EURHUF=>, which hit its highest
since November this week, dropped 0.3 percent to 267.03 per euro
after inflation in February slowed below market expectations,
keeping the option of a rate cut open. []
Yields on 3- and 5-year bonds auctioned on Thursday dropped
36-45 basis points since a sale two weeks ago. []
Romania's leu <EURRON=> dipped 0.1 percent to 4.094 per
euro. The currency shook off lower inflation data on Wednesday
that pointed to further rate cuts. []
The crown <EURCZK=> dropped 0.2 percent, but held near
4-month highs. Analysts expect Romanian policymakers to also
ease monetary conditions, while Czech and Polish rate setters
will likely start tightening in the second half.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.57 25.531 -0.15% +2.93%
Polish zloty <EURPLN=> 3.901 3.876 -0.64% +5.2%
Hungarian forint <EURHUF=> 267.03 266.11 -0.34% +1.24%
Croatian kuna <EURHRK=> 7.261 7.263 +0.03% +0.66%
Romanian leu <EURRON=> 4.094 4.089 -0.12% +3.5%
Serbian dinar <EURRSD=> 99.6 99.803 +0.2% -3.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to 81bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +115bps over bmk*
10-yr T-bond CZ10YT=RR 0 basis points to +96bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +388bps over bmk*
5-yr T-bond PL5YT=RR -9 basis points to +312bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +263bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1202 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet;
editing by John Stonestreet)
